Companies and Allied Matters Act: The fate of alternate directors

There is a present uncertainty regarding the position of alternate directors in Nigerian company law. Before the coming into force of the Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria 2004 (CAMA), it was not uncommon for companies to have alternate directors. This was common in multinational companies which had local subsidiaries.

[sociallocker]

Before we dive into the controversies regarding alternate directorship, it is appropriate to determine who an alternate director is. An alternate director is a person who is appointed by a director to attend board meetings on behalf of the appointing director when that director would be unable to attend the board meetings. Before a director can appoint an alternate, he has to notify the company concerned of the proposed appointment. For the appointment to be effective, the board of directors of the company must approve it. The appointee-director (the alternate director) can exercise the powers and carry out the responsibilities of the director who appointed him at any meeting he attends on behalf of the director who appointed him.

Empirical evidence suggests that the practice of alternate directorship is no longer very common in Nigeria. It is not clear whether this is because it is uncertainty whether companies in Nigeria can have alternate directors. This uncertainty is predicated on the absence of any provision in that regard in the CAMA or the model Articles of Association contained in the CAMA.

In the pre-CAMA era when alternate directorship was a common practice in Nigeria, a company could have alternate directors where its Articles of Association provided for the appointment of alternate directors. Thus, where the Articles of Association contained no provisions regarding the appointment of alternate directors, such a company would not have alternate directors on its board.

In the United Kingdom where the bulk of Nigeria’s company law and practice were derived, alternate directorship is still permissible. Even though the UK’s Companies Act 2006 has no specific provision regarding alternate directors, the model Articles of Association contained in the UK’s Companies Act 2006 has copious provisions on alternate directors. Thus, a UK company that adopts the model Articles of Association or has provisions on alternate directors in its Articles of Association can validly have alternate directors on its board of directors.

It may be argued that since alternate directorship is a global practice, then it should be applicable in Nigeria too. Such line of argument may be buttressed by the fact that the practice had been in existence in Nigeria before. However, it is difficult to justify such assertion with legal authority. The total muteness of the CAMA on alternate directorship does not support such contention. This is so because there is no legal, statutory basis to justify the practice. It is recalled that in the Report on the Reform of the Nigerian Company Law issued by the Nigerian Law Reform Commission in 1991 which documented some of the processes leading to the promulgation of the then Companies and Allied Matters Decree 1990 (which has metamorphosed to the present-day CAMA), it was recommended that the practice of appointing alternate directors be prohibited. Sadly, when the statute was eventually promulgated, it contained no provision on alternate directors. Consequently, given the present state of the law on the issue, it is a matter for conjecture whether alternate directorship is still applicable in Nigeria or not.

Indubitably, alternate directorship has its merits. It ensures continuity on the board. Also, it eliminates disruptions. Again, it facilitates the availability of quorum for directors’ meetings. Nevertheless, it has its demerits; and these are legion. In the first place, it seems to defeat the provisions of the CAMA which requires directors to be appointed by shareholders because it permits of a director appointing another director. It is conceded that directors also appoint directors to fill casual vacancies on the board. The appointment of directors by other directors to fill casual vacancies on the board is a different situation entirely. It is a temporary measure that is statutorily provided for in the CAMA. In addition, a director appointed to fill a casual vacancy automatically retires at the next Annual General Meeting of the company, but he is subject to re-election if he so offers himself.

Secondly, alternate directorship violates the company law principle that directors may only delegate their management powers if the statute or articles allow it. This power to delegate is usually given to the board, as a body, and not to individual directors as is the case with alternate directorship.

Thirdly, the practice of alternate directorship is susceptible to gross abuse by directors who may hold directorships in numerous companies beyond the number of directorship they can adequately attend to personally. This situation is made possible because there is, at present, no restriction on the number of directorships an individual may hold. A director who has deliberately bitten more than he can chew can utilise alternate directors to fill up his absence in the boards in which he is a member where he is unable to personally attend board meetings. This could breed “absenteeism and divided loyalty on boards”.

Fourthly, the legal status of an alternate director is unclear. For example, would he be said to be the agent of the company or the director who appointed him? What rules govern the relationship between the alternate director and the director who appointed him? Can an alternate director be removed at will by the appointing director? Can a person be appointed as an alternate director to more than one director in the same company? Where a person is an alternate to two directors, does he get two sitting allowances in respect of one board meeting? Does he also vote twice on any motion before the meeting? Can a fellow director be an alternate director to another director? If yes, does he count twice for the purpose of the determination of quorum of the board meeting in which the directors who appointed him are absent? Too many questions, but no answers!

Fifthly, in this era of strengthening corporate governance regulation and enforcement with the consequent broadening of directors’ responsibilities and liabilities, the uncertainty that alternate directorship engenders is better avoided. A director who has no time to attend board meetings obviously cannot adequately perform his duties to the company. He is therefore not required on the board of directors of the company. Those to be appointed as directors of companies should not only have the requisite skills and experience, they should also have the time to function in that capacity. If a director has limited time for a company’s business or activities, then it is doubtful if the board would be getting adequate benefits from his presence on the board of directors of the company.

The above shortcomings of alternate directorship notwithstanding, it is important that the law is clear on alternate directorship. In another review of the CAMA, this matter should be specifically addressed. If it is the intention to prohibit it (an intention that was expressed during the workshops leading to the promulgation of the present-day company law statute in Nigeria), then there should be a specific provision to that effect. If on the other hand, it is desired that the practice should continue, then this should be expressly sanctioned in the statute. In such a case, it would serve the intention greatly if all the unanswered questions above regarding alternate directorship are addressed in the statute. It is desirable that there is certainty and clarity in the law regulating companies in Nigeria. It is hoped that this matter shall be addressed at the next round of amendment of the CAMA to enhance the efficacy of the statute.

In the next article in this series which shall be published on Tuesday 5th February, we shall consider another issue which deserves to be re-examined with a view to tweaking the provisions of the CAMA regarding it. Meanwhile, should you have any comments on this discussion on alternate directorship, kindly share them in the comments area of this post below. If you are already a registered user, you will be required to log in to comment on this post; otherwise, you will have to register before posting your comment. Registration is simple and FREE.

0 comments on “Companies and Allied Matters Act: The fate of alternate directors”

1 Pings/Trackbacks for "Companies and Allied Matters Act: The fate of alternate directors"

[…] directors [see here, here, here, and here], shadow directors [see here], alternate directors [see here] and life directors. It is appropriate at this point to point out the major differences between an […]